For inventors, a joint venture is an agreement by two parties to
work together to design, promote or manufacture a new product. The
parties split the work and the profits. Inventors can form a wide
variety of partnerships, including:

A partnership with a manufacturer who will help design the new
product, build prototypes and eventually produce the product. The
inventor is responsible for all sales and marketing activities and
may also pay for the patent and other tooling expenses.

A contract with a sales and marketing group that agrees to
market the product

An agreement with an expert in the field--such as a pro golfer
or a well-known doctor--to present the product to consumers

An alliance with an engineer or industrial designer who will
finalize the product design

A joint venture with another marketing company to exploit a
market other than the one originally targeted

An agreement with an overseas manufacturer to make your product
for a reduced price and extended terms in exchange for overseas
marketing rights

Inventors form alliances because either they need a partner to
help foot the bill, or they need to offer an extra incentive to get
help from key people in the market. For instance, an inventor who
wants to penetrate the hardware-store market may team up with a top
manufacturers' sales representatives agency. Agencies might not
be interested in taking on a product for a standard 10 percent
commission. But they might be willing to take on the product--and
pay for promotion--if they form an alliance and receive 50 percent
of the profits.

When forming joint ventures and alliances, you might be hoping
to do any of the following:

Introduce and penetrate the market as quickly as possible

Receive sufficient funding and support for a project that is
beyond your resources and experience

Have more involvement in the ongoing success of the product
than you would get in a licensing arrangement

Develop the product further before it can be licensed. An
alliance can be a precursor to an eventual licensing
agreement.

Generate additional market information and distribution-channel
contacts that can be used for subsequent inventions

Obtain management, administrative and manufacturing support for
a new product. A company with experienced personnel can do these
tasks far better than most inventors.

What You Need to Succeed

Alliance or joint-venture partners look for a significant
business benefit when they decide to team up with an inventor.
Typically, they are only interested in your product if it can
increase their sales 15 to 25 percent, or if it provides them with
a market advantage over their competitors. The perfect product,
from their perspectives, is one that has considerable market
impact.

From the inventor's point of view, perfect products for a
joint venture are ones that the inventor doesn't have the
resources to produce, or the marketing network or credibility to
launch. A joint venture allows inventors to move their products to
market quickly with much less financial risk. The key to success is
finding the right size companies to approach. If your product can
sell $1 million to $2 million per year, a $100 million corporation
won't be interested--but a $5 million corporation might be.

Here are some other factors to consider as you investigate joint
ventures:

Money matters: Typically, the main advantage of a
joint-venture strategy is that you get funding from your potential
partner. For example, you may have identified a big market
opportunity, but lack the money to create prototypes. You approach
a potential partner company and discuss a possible alliance if the
product is successfully developed. You can then ask for money or
engineering support to finish the prototype. One strategy is to ask
for support only for this first step; once the prototype is
finished, the two parties can decide if they want to proceed. This
step-by-step process is usually much easier to sell to a company
than a licensing agreement.

Protection: You don't really need a patent to strike
a joint-venture agreement, but it does improve your negotiating
position and helps ensure that the product's intellectual
property rights belong to you. You could apply for a provisional or
design patent, but this can be dangerous. The provisional patent
gives you only one year to apply for a utility patent. That year
could easily run out before you finalize your agreement and finish
the product design. You're better off applying for a very broad
patent, knowing your initial application will be contested by the
patent office. Then you can keep going back and forth with the
patent office for several years. This tactic can keep your patent
rights open for three to five years.

Prototypes: Many inventors choose a joint venture
because they don't have the experience or the money to finalize
a "looks like, works like" prototype. But a drawing often
isn't enough to get a positive response from a potential
partner. Having a prototype is important. Don't spend too much
money creating a prototype; just take it far enough so the partner
can see your product's sales potential.

Research: You won't have any trouble finding a
partner if you uncover a product that satisfies the needs of a
large market. But it's up to you to prove the market is there.
Your research should show that customers need and want your
product, and that they're willing to pay a reasonable price for
it.

Manufacturing: Most inventors create a joint venture
with a manufacturer that can make the product. Most sales and
marketing partners won't form a joint venture with you unless
you have a manufacturing source.

Dos and Don'ts

Don't ask for too much of the profits. Other companies are
not going to work hard to make you rich. You won't get a deal
if you ask for more than 50 percent.

Do bring something to the table--either engineering know-how to
create the final product or numerous contacts in the distribution
network to expedite sales.

Don't approach a potential partner without several pieces
of market research from target customers. Your position is more
favorable if you have survey results from at least 15 to 20
potential users, and even stronger if you have results from 15 to
20 people in your potential distribution channel.

Do have a professional in charge of every phase of your
operation. If you plan to handle sales and marketing and don't
have marketing experience, you need advisors who do. Ditto for
manufacturing.

Don't be a pain. Companies won't proceed with a joint
venture, no matter how profitable, if you appear difficult to work
with. Don't call constantly with questions, revisions or
suggestions. Limit your contacts to one or two per week where you
mention major concerns.

Steps to Success

You are trying to convince a potential partner that together you
can dominate the market. What will really get your potential
partner excited are your relationships with key people in the
market. Having an advisory board of key end users and distributors
is a common tactic to show that you're connected to the market.
Here are steps for finding those key people:

Meet as many people in the target market as you can, and start
identifying "early adopters"--people who buy products
before anyone else.

Meet as many people in the distribution channel as you can, and
get their input.

Read trade magazines, and identify the key players in the
market.

Go to your target customer's local association meetings to
find new contacts and to get a better understanding of what people
want.

Use your key contacts to help you find the right potential
partners to approach. Your best bet for a good joint-venture
partner is a company that has strong manufacturing skills but weak
marketing capabilities.

Next, develop a relationship with a regional manager or
marketing person at a company you have targeted as a potential
partner. To succeed, you need someone on the inside of the
potential partner company pushing for an agreement.

As you search for a joint-venture partner, here's what to
expect:

Potential partners will not be easily convinced that you have a
unique, profitable opportunity.

You will have trouble getting an appointment if you don't
find a company contact who will recommend that the company look at
your offer.

You will have to push for a formal agreement to establish your
rights in the relationship. (The partner will try to keep the
agreement on a more informal basis.)

You will have to persuade the partner that you can do your part
in the promotion.

The company will want to proceed slowly to ensure your idea has
potential and they can count on you.

You will be responsible for keeping the momentum going.

You will have to take charge of finalizing the product design,
even if the partner does most of the work.

Sales for most joint-venture partners take three to four months
to ramp up. Don't be alarmed if it takes six months for the
product to show true sales potential.

Realistically, most inventors who use a joint-venture strategy
would not have been able to launch their products otherwise. A
joint venture can place you in big, powerful markets where there is
a lot of interest from investors. It also lets you maintain some
ownership of the product and make contacts with distributors, end
users and key industry people. If you manage it well, a joint
venture or alliance can be a steppingstone on the road to launching
a full-fledged company of your own someday.

Is a Joint Venture Right for You?

Pros:

Allows you to introduce new products that are beyond your reach
in terms of either resources or experience

Helps you gain production experience that you can use in the
future

Speeds up the introduction and market penetration of a new
product

Offers you greater control of the product and its subsequent
development than a licensing agreement

Is a much easier sell than a licensing agreement

Allows you to introduce new products when you can't afford
to produce a "looks like, works like" prototype

Cons:

Doesn't give you total control of the product

Depends on another party to do their jobs effectively for the
product to succeed

You can't withdraw the product to start a company on your
own.

May not establish you as a market force capable of launching
your own company